It is my great pleasure to present New Zealand’s fourth Wellbeing Budget.
The investments we are making in this Budget build on the progress made in Budget 2021 towards the Government’s three goals for this term.
These are:continuing to keep New Zealanders safe from COVID-19
accelerating the recovery and rebuild from the impacts of COVID-19
laying the foundations for the future, including addressing key issues such as climate change, housing affordability, and child poverty.
Budget 2022 invests $5.9 billion a year in net new operating spending, while introducing multi-year funding packages that also draw from Budget 2023 and Budget 2024 operating allowances.
We are investing $2.9 billion from the Climate Emergency Response Fund (CERF) to meet our Emissions Reduction Plan and lay the foundations for the long-term transition to a low-emissions, high-wage economy.
We are also supporting New Zealanders to meet the rising cost of living caused by global inflation pressures, through a targeted package of support focusing on low- and middle-income New Zealanders, including a short-term Cost of Living Payment for around 2.1 million people.
Wellbeing Outlook
Mr Speaker,
New Zealand’s overall wellbeing has held up well during the COVID-19 pandemic. Our mortality rate remains lower than those of our international peers, and life satisfaction remains high across all ethnicities.
While the economic contraction associated with COVID-19 was much deeper and much more sudden than what New Zealand experienced during the Global Financial Crisis, the economy has proven to be resilient, with economic activity in the December 2021 quarter 3.5 percent ahead of pre-pandemic levels.
Unemployment at 3.2 percent is at record lows, household incomes have continued to rise, and balance sheets are strong across almost every sector.
We have done this with some of the lowest debt in the world. Our debt is forecast to be around one half of Australia’s, a quarter of the UK’s and a fifth of the USA’s, using a comparable measure.
As I have indicated, we are moving to a new debt indicator that is more in line with how other countries measure their net debt, and more accurately reflects the Government’s fiscal position. On that indicator net debt will now peak at 19.9 percent of GDP (41 percent using the old indicator) before reducing further over the forecast period.
Economic growth is forecast to peak at 4.2 percent and average 2.1 percent across the forecast period.
We are forecast to reach an operating balance before gains or losses (OBEGAL) surplus in the 2024/25 Financial Year. This will be five years after COVID hit us, and is a year earlier than the previous Government returned to surplus after the Global Financial Crisis.
New fiscal rules will oblige the Government to run a small surplus on average over time once we’ve returned to surplus, and maintain net debt below a ceiling of 30 percent of GDP.
This approach means that current expenses will be met from current revenue. We will have a prudent level of debt that allows for a buffer against future shocks, while providing room for high-quality and much-needed investment to close our infrastructure deficit.
Mr Speaker,
This balanced approach to fiscal policy is critical as we face the immediate challenges that are in front us, and as we address the long-term issues in our economy.
The impacts of COVID-19 remain with us. Experiences of the pandemic differ greatly among New Zealanders, and its long-term effects have yet to be seen.
Long-standing challenges around climate change, child poverty, productivity, and housing quality and affordability have not lost their urgency.
On top of that Budget 2022 is being delivered in a difficult time for the global economy and for many New Zealanders. The impacts of rising inflation due to COVID, supply chain challenges, and pressure on oil prices from the Russian invasion of Ukraine are being felt at the petrol pump and at the supermarket.
This Budget responds to these immediate challenges facing New Zealanders while also looking ahead.
The here and now matters, but so too does tomorrow, and making sure that we provide for a secure future. This Budget is about both: a careful balance to provide economic security into the future, and make sure we invest for what is needed now, without adding to the drivers of inflation.
Supporting New Zealanders with the rising cost of living
Mr Speaker,
I will talk more about our long-term initiatives shortly. First, I will focus on the immediate challenges.
I am acutely aware of the cost of living pressures that exist for many people, particularly those on low- and middle-incomes. While the current levels of inflation are expected to be temporary, this doesn’t take away from the impact it is having on households and businesses.
New Zealanders are not alone in feeling these pressures.
Recently the US has recorded inflation of 8.5 percent, Canada 6.7 percent, Germany 7.3 percent and the UK 6.2 percent, with recent forecasts that it will rise towards 8 percent. The very latest OECD average was inflation of 8.8 percent in March, putting New Zealand about middle of the pack.
Such international comparisons, however, do not diminish the impact on New Zealanders who are currently struggling to deal with rising costs.
Mr Speaker,
The Government throughout COVID has supported households and businesses. More than $20 billion was provided in across-the-board support from the Wage Subsidy Scheme, Resurgence Support and COVID Support payments. This has kept many people in work; 62 percent of all jobs were supported in 2020 by the Wage Subsidy Scheme, and 47 percent in 2021.
In response to the rapid spike in global oil prices following the war in Ukraine, we moved quickly in March to reduce the fuel excise by 25 cents a litre. For a family that fills up an average car every week, that represents up to $17 per tank, or more than $220 worth of support over the three months. Road User Charges were similarly reduced, and public transport prices halved for the same period.
These measures were on top of changes we made to increase income support for low-and middle-income families from 1 April this year, including a third lift in weekly main benefit rates following those in 2020 and 2021.
The changes we have made since coming into Government mean that 364,000 people who receive income support are better off by an average of $109 per week. For those with children, they are better off by an average of $175 per week.
As we move through these next few months, further targeted support is being provided for low- and middle-income New Zealanders.
The resumption of the Winter Energy Payment from the 1st of May is providing this for superannuitants and those on income support, with at least $80 per month from the beginning of May until the end of September.
But the increasing cost of living is affecting those on middle incomes as well.
To provide targeted support to a wider group, through this Budget the Government is investing more than $1 billion in a cost-of-living package targeted at low- and middle-income households.
The package includes:
an extension to the reduction of fuel excise duty introduced in March, by two months until mid-August
an extension of the road user charges cuts introduced in April, until mid-September, and
an extension of half-price public transport fares introduced on April 1, until the end of August.
I can also announce today that from September, we will introduce Community Connect to extend half-price public transport to the more-than-one-million community service card holders on a permanent basis.
In addition to helping reduce costs for households, the public transport price cuts will also further our climate change and emissions reduction objectives.
We will also provide short-term targeted support to low- and middle-income New Zealanders through a $350 Cost of Living Payment, across three monthly instalments from August 1. This works out to about $27 per week for an estimated 2.1 million New Zealanders.
This payment will be available to people aged 18 and over who earn below $70,000 per annum, based on last year’s tax data, and who are not eligible for the Winter Energy Payment.
We are well aware that this is only a contribution to the increased costs that people are facing, but it is a targeted way we can support people through this challenging period, while not excessively exacerbating inflation.
The payment has been set at half of the couple rate of the Winter Energy Payment, and is a recognition of the impact of inflation on a wider group of New Zealanders than those currently eligible for the Winter Energy Payment.
As a result of both the Winter Energy Payment and the Cost of Living Payment 81 percent of working age New Zealanders are being given temporary support to deal with cost of living pressures.
Mr Speaker,
The Budget provides further important changes that will support those on low incomes.
Budget 2022 will change how sole-parent beneficiaries receive child support payments.
These payments will be directly ‘passed on’ as income to sole parents receiving benefits from 2023, giving them more money to help their families and whānau. This change is estimated to lift between 6,000 and 14,000 children out of poverty.
We are also delivering on a manifesto commitment by more than trebling the level of dental grants available to low income earners to $1,000 per annum. Criteria changes will ensure these grants can be used for multiple visits for immediate and essential care.
Mr Speaker,
While much of the inflation being experienced in New Zealand is driven by forces beyond our shores, we are also focused on addressing the supply constraints and other underlying issues that fuel it.
This includes increasing labour supply through our Immigration Rebalance, and reducing our reliance on volatile commodities like oil, by decarbonising our transport fleet through initiatives like the Clean Car Discount.
We are also committed to boosting competition in the New Zealand’s grocery sector to ensure people pay fair prices for food and other basics.
Today, we are introducing legislation that will remove barriers to new retailers entering the market.
Specifically, this will prohibit the restrictive covenants on land that major grocery retailers use to limit site availability for competitors. Such covenants will be prohibited immediately once the Bill comes into effect, and I anticipate that competitors can begin to consider new sites shortly thereafter.
There are other measures the Government will take in response to the Commerce Commission’s recommendations, but this is one thing that can be done relatively simply and quickly.
Overall, the cost of living package in Budget 2022 represents a targeted response to the pressures being faced by low- and middle-income households, and provides support without making the cause of the problem worse.
Climate Change
Mr Speaker,
Moving to our longer-term challenges and opportunities.
Budget 2022 marks an historic milestone in tackling climate change.
Climate change is the most pressing long-term challenge we face. It will have a significant impact on New Zealanders’ living standards in the coming years, impacting the natural environment, our health, and our economic, social, and cultural wellbeing.
Recent reports that have highlighted worsening predictions for sea level rise remind us again that we must act now for the sake of future generations.
The action required presents opportunities to increase our economic security as we develop new low-emissions industries and the knowledge and skills needed to transition to a high-wage, low-emissions economy.
New Zealand’s reputation in the world, and the brand on which we trade, is tied to the action we take on environmental issues, including climate change.
Mr Speaker,
Mitigating and adapting to climate change requires a sustainable, forward-looking response and significant investments across multiple Budgets. To address this, we have established the Climate Emergency Response Fund (CERF) with an initial $4.5 billion ‘down payment’ from the expected cash proceeds from the Emissions Trading Scheme (ETS).
For Budget 2022, investments are focused on mitigation, particularly initiatives to deliver actions in the Emissions Reduction Plan. In future, the criteria will be extended to include adaptation.
As announced earlier this week, the CERF investments for Budget 2022 total $2.9 billion, and include a strong focus on transport initiatives. These include:
$569 million to support low-income households to shift to low-emission alternatives when scrapping a vehicle, and
$375 million to reduce reliance on cars and support the uptake of active and shared transport modes.
There are also significant climate-focussed energy and industry investments, including:
$653 million to fund further decarbonisation, including increasing the scope of the Government Investment in Decarbonising Industry Fund to support businesses to shift to low-carbon energy sources, and
$73 million to deliver more insulation and heating retrofits for low-income homeowners by extending the Warmer Kiwi Homes programme.
In the Agricultural sector, climate investments include:
$339 million funding for a Centre for Climate Action in Agriculture to support innovation and research to reduce emissions, and
$6 million for the implementation of an agricultural emissions pricing scheme, based on the outcomes of the Primary Sector Climate Action Partnership (He Waka Eke Noa).
In the forestry sector:
$91 million is allocated to reduce the use of coal and other carbon-inten
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